Value-Added Tax Amendments: Review

By Edlan Jacobs - Senior Manager – Tax

We appreciate the comprehensive nature of the proposed amendments, all of which hold relevance. However, certain topics have caught our attention due to their impact on affected vendors.

Updating the Electronic Services Regulations

The government has proposed limiting the scope of the Electronic Services VAT legislation, which affects non-resident vendors supplying electronic services to non-vendors or end consumers.  This proposal is welcomed as a positive step forward.

Many voices within the tax community have advocated that business-to-business transactions should be excluded from the impact of the electronic services provisions.

While we anticipate further clarification, several points warrant attention: 

• The proposal refers to “non-resident vendors”. In our view, the proposal should apply to “suppliers”, that is the exclusion should apply at the supply stage, and not when it has been concluded that the supplier is a vendor.   
• The proposal implies that VAT on Electronic Services would only apply to “non-vendors or end consumers” (recipients). Clarity is sought on how registered vendors, who are also end consumers (recipients), will be impacted.
• It is unclear how the current proposal will interact with VAT on imported services, particularly in instances where the recipient is subject to apportionment on their input tax claims.

We trust that the Government will use this opportunity to clarify the definition of electronic services and in particular the concept of human intervention. By providing guidance on what constitutes “minimal human intervention”, would give a clear effect to the stated policy intention of only subjecting supplies affected through minimal human intervention (i.e., automated supplies).

Prescription Period for Input Tax Claims 

To streamline the audit function, a proposal has been made to amend the VAT Act, clarifying that input tax deductions must be claimed in the original period, in which the entitlement to that deduction first arises. While this proposal may at first glance raise concerns, it does not significantly impact the time-period within which input tax deductions may be claimed.

Essentially the proposal requires that delayed VAT input deductions must be claimed within a five-year period by correcting the original tax return, rather than by including the claims in subsequent returns.

Under the current wording, VAT vendors are entitled to claim input tax deductions in any tax period, within five years after the end of the tax period, from the date on which:

• The tax invoice should have been issued;
• The goods were entered for home consumption;
• The second-hand goods were acquired or were repossessed or surrendered;
• The agent should have notified the principal; or
• In any other case, the vendor for the first time became entitled to such deduction (without being prevented on a documentary proof basis).

 

The proposed amendment would direct the claim for the deduction to the period in which the claim first arises. We anticipate that vendors would be entitled to claim this deduction within five years from the date of the original assessment, as per the prescription period outlined in the Tax Administration Act, No. 28 of 2011.

Where SARS has denied input tax claims, typically during a verification process or information-gathering process, the correct procedure would be for the vendor to lodge an objection. However, it is common practice for SARS to direct vendors to rather not object, and instead deduct the disputed input tax in subsequent tax periods. This proposal will end this unfortunate practice.

Despite the proposal above, eFiling currently does not allow a vendor to increase the value of input tax claims once a VAT return has been submitted, despite the legislation allowing the reopening of VAT returns up until the date on which the return has been prescribed. It is expected that eFiling will be updated to allow this proposal to be affected.